Repurchase of life rights to immovable property: are they taxable?

Q: We have a client that went through a divorce in 1990. Part of the agreement
was that the holiday home that was in the wife’s name, be kept in her name and the
husband will receive 50 per cent life rights to the property. This property was
valued at R500 000 at that time. The wife now would like to buy out these life
rights from the husband and has agreed to pay him R1,5 million to buy out his
50 per cent. Is this amount that the husband will receive taxable or does it
still fall under the divorce agreement?

A: It is our view that the repurchase of the life
rights by the wife would not be in terms of the divorce agreement as the
initial allocation and not the repurchase was part of the divorce settlement
per the facts provided. The sale and cession of these rights would constitute a
disposal in terms of para 11 of the Eighth Schedule and CGT would have to be
calculated accordingly.

Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.

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